How to Estimate the Monthly Costs of Car Ownership

Vehicle sales have been on an upward trend in the United States for quite some time now. More than 15 million people across the United States bought cars, trucks, vans, and SUVs last year alone according to recent reports from the automotive sector. That number is expected to continue to grow in the years to come. Most people analyze and compare vehicle costs to determine how much they can afford to spend on down payments and monthly payments. Still, many ultimately end up paying more than they expected.

How to Estimate the Monthly Costs of Car Ownership

Understanding the True Cost of Vehicle Ownership

When it comes to vehicle ownership, failing to look at the bigger picture can cause a few problems. Many people find that it puts a major crimp in their budgets. For some, it transcends beyond a mere crimp to become serious financial hardships. Understanding the true cost of vehicle ownership before signing on the dotted line is essential. As you're looking at the inventory available from a Car dealership boise idaho, keep the following points in mind to help you find a vehicle that's truly affordable on your budget.

Vehicle Prices

Obviously, the first aspect to look at would be the overall prices of the vehicles you've got your eye on. Reports indicate that the average cost of a new vehicle right now is $48,000. Average prices for used vehicles range from $35,000 for those five years old or less to about $27,000 for those that are more than five years old. Keep in mind that these are very general estimates. High-end vehicles are going to greatly exceed the norm while extremely used models could cost quite a bit less.

Down Payment

Then, think about the down payment for a vehicle. Most experts recommend making a down payment of at least 20 percent of the total cost of a new vehicle. For used vehicles, it's safe to make a down payment of at least 10 percent. That'll cover a good portion of the total cost upfront, so you'll have lower monthly payments.

With the average prices listed above, that would be about $9,600 for a new vehicle; $7,000 for a newer used vehicle; and $5,400 for an older used model. Again, this is a general number. Many dealerships accept less than the norm, but that'll affect your monthly payments.

Interest Rates

Interest rates also need to be factored into the cost of ownership. With the down payment out of the way, interest will be added to the remaining cost of the vehicle. Interest rates vary greatly. They fluctuate constantly. At the same time, they vary between new and used vehicle loans and even by lender. To make matters even more complicated, the interest rate you get will partially depend on your credit score. People with higher credit scores generally get lower interest rates and vice versa.

Monthly Payments

From there, the situation could take a couple of different turns. On one hand, you could choose higher monthly payments and a shorter loan term. On the other hand, you could make smaller payments each month for a longer period. Neither of these is inherently the wrong choice, but it's important to dig a little deeper before deciding.

Smaller payments would be more affordable on a monthly basis, but the interest you'd pay over the long term would be far higher. Higher monthly payments could be more of an immediate struggle, but you'd pay off the vehicle more quickly and ultimately pay less interest. At present, the average monthly payment for a new car in America is between $700 and $750 whereas that of a used vehicle is between $500 and $550.

Beyond the Basics

All that covers the basic monthly cost of buying a vehicle. Of course, those aren't the only factors to keep in mind. Several other expenses are going to come into play. These are the expenses you'll never really pay off. Once you pay off the vehicle itself, though, they may be a bit easier to manage.

Insurance is one of the main long-term expenses to consider. It's required by law in almost every state. Though a select few vehicle owners seem to slip through the cracks and get away with driving without insurance, that approach isn't recommended.

It's better to err on the side of caution for the sake of the law and your own protection. Those who get caught driving without insurance are up against serious consequences. Beyond that, if you were to have an accident without being covered by insurance, even if it wasn't your fault, the resulting costs could far outweigh those of insurance coverage.

As is the case with vehicle prices and interest rates, the cost of insurance varies depending on several factors. Your driving record, the type of vehicle you buy, its age, your age, and where you live are a few of the main considerations here. How much coverage you purchase also factors into the equation.

Sources indicate that the average annual cost of full coverage for someone with a good driving record is about $2,000 while that of minimum coverage is around $550. For someone with blemishes on their driving record, that could jump to more than $3,000 per year for full coverage and over $1,000 for basic liability. It's important to point out that some auto lenders require borrowers to maintain full coverage on a vehicle until it's paid off.

Registration, Taxes, and Tags

Registering a vehicle in your name and getting license plates for it also comes with certain fees. You'll have to pay taxes on the vehicle each year as well to keep those and its registration current. If you don't pay taxes and registration fees, you can't get valid license plates or decals as needed. Those expenses vary depending on your vehicle, where you live, and other aspects. They can range from $25 to several hundred dollars.

Fuel, Maintenance, and Repairs

Don't overlook the cost of fuel, routine maintenance, and repairs, either. Fuel, alone, can be quite expensive, and the more you drive, the more you'll need. Routine maintenance includes oil changes, tire rotations, replacing brake pads and shoes, and the like. On average, basic upkeep runs about $50 to $100 per month. Major repairs are far more expensive, so it's best to set aside extra money along the way to cover those.

Budgeting for a Vehicle

All these expenses should be factored into the monthly cost of vehicle ownership. Your down payment will affect your monthly payments, and those, combined with interest, are the most significant expenses you'll deal with when purchasing a vehicle. From there, insurance, registration, taxes, license plates, fuel, maintenance, and repairs come into play.

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